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TMI Blog2007 (7) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciate that the person who are entitled for deduction under section 80HHC are those who are engaged in the business of export out of India of any goods or merchandise. Such deduction is available as per the provisions of section 80HHC(1) to an Indian company resident in India, "engaged in the business of export out of India of any goods or merchandise". The key word in section 80HHC(1) is the word "engaged" which was brought into Act by the Finance Act, 1985 with effect from 1-4-1986." 4. The assessee-company is a manufacturer, trader and exporter of garments, fabrics, etc. The assessee filed its return of income on 30-12-1999 declaring total income of Rs. 4,69,460. It also filed copies of Trading, Profit and Loss Account, Balance sheet and Tax Audit Report under section 44AB before the Assessing Officer. The assessee claimed deduction under section 80HHC amounting to Rs. 2,39,45,187. The assessee had shown export sales at Rs. 61,07,61,940 in its Profit Loss Account for the year under appeal. The Assessing Officer perused the details and noticed that export sales amounting to Rs. 10,20,31,150 out of total export sales of Rs. 61,07,61,940 were not made by the assessee itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 80HHC in its reply filed before the Assessing Officer. In other words, the assessee sought to emphasize before the Assessing Officer that the local transfers made by the assessee to the sister concerns who, in turn, had made the exports should be treated as its export sales through agents. 6. The Assessing Officer considered the submissions 9f the assessee. He however rejected the plea of the assessee for treating the local sales made to the sister concerns and consequential exports made by the sister concerns as its exports sales through agents and consequently excluded sum of Rs. 10,20,31,150 being local transfers to the sister concerns from the export turnover of the assessee for the purpose of computation of deduction under section 80HHC. Aggrieved by the aforesaid order, the assessee carried the matter in appeal before the CIT(A). The ld. CIT(A) has also decided the issue against the assessee for the detailed reasons given in his appellate order. 7. Aggrieved by the order of the learned CIT(A), the assessee is now in appeal before this Tribunal. In support of his appeal, the assessee has filed voluminous paper book in three volumes containing 121 pages, written submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had entered into agreements with the aforesaid sister concerns wherein the terms and conditions were specified. According to the agreement, all the payments against exports were to be received by the sister concerns directly from the customers and so also the duty drawback from the Government of India. Likewise all the aforesaid sister concerns were required to incur expenses like bank charges, bank interest, clearing, forwarding etc. for making the exports. The claim of the assessee however was that the sister concerns had carried out all the export related activities including receipt of money and disbursement of expenses for and on behalf of the assessee and in their capacity as the agents of the assessee. It was emphasized that it was the assessee-company, which had received the export order in its own name. In other words, the export orders were neither procured nor received by the sister concerns on their own. (iv) It was contended that the assessee-company had exhausted its quota rights allotted to it by the Apparel Export Promotion Council when it received the order for export of textile garments to M/s. Global Apparels Inc., USA and thus had no quota rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipal and agent. (vii) As regards the export benefits taken by the aforesaid three sister concerns and later on passed over to the assessee, it was submitted that it was the assessee alone who could claim the benefit under section 80HHC in terms of clause 14 of the Agreement. He submitted that none of the aforesaid three sister concerns had claimed any benefit under section 80HHC in their individual income-tax cases in respect of the impugned exports. 8. The ld. counsel for the assessee has strongly relied on clauses 11, 12, 13, 14 and 15 of the Agreement, which read as under: "11. That the additional quota rights that may be obtained by the Agents on account of export of goods to the said Global Group shall be the property of the Agents and shall always remain their property and the Exporters shall not claim any right or interest in the same. 12. That any incentive that may be received on account of export of goods from India other than the quota rights shall belong to the Exporters alone and such incentives when received by the Agents for and on behalf of the Exporters they shall hand over the same to the Exporters. 13. That the Exporters hereby authorizes the Agents to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and merchandise and therefore the mere fact that the assessee had exported some of its goods through its sister concerns acting as its agents would not defeat the claim of the assessee in terms of sub-section 80HHC(1). 12. As regards the other charge of the Assessing Officer that the assessee had not received the sale proceeds of the exports in convertible foreign exchange, the learned Authorized Representative for the assessee submitted that the provisions of sub-section (2)(a) and also clause (b) of the Explanation to section 80HHC required that the sale proceeds of eligible goods or merchandise exported out of India should be received in, or brought into, India by the assessee (other than the supporting manufacturer) in convertible foreign exchange within the stipulated period. According to him, the assessee might not have received the sale proceeds of the exports made through the sister concerns acting as agents in convertible foreign exchange in India but it had certainly brought the said proceeds in convertible foreign exchange into India within the stipulated time and, therefore, the case of the assessee was not hit by the aforesaid provisions. 13. In support of his sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental Representative, the assessee has not made the exports in the present case and hence the exports made by others could not be treated as export turnover of the assessee. (iv) Referring to the judgment in Sea Pearl Industries' case, the ld. Departmental Representative submitted that the burden was on the assessee to show that it had actually exported the goods and that it had received the export proceeds in convertible foreign exchange. The aforesaid requirements, according to the learned Departmental Representative, were not satisfied by the assessee in the present case. The ld. Departmental Representative invited our attention to the observations in Sea Pearl Industries for the proposition that the question of title of property in the goods exported was not relevant to section 80HHC and that the section did not require the exporter to be the owner of the goods. He contended that the question of ownership of goods was totally irrelevant consideration in deciding upon the claim of the assessee. (v) Inviting our attention to the various clauses in the Garments Exports Entitlement Policy (1997-99), the ld. Departmental Representative submitted that the quotas based on Past Per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em by the Government for export of garments. The quota rights so allotted to them were non-transferable. It was the policy of the Government, i.e., Garment Export Entitlement Policy (1997-99) issued by the Apparel Export Promotion Council that quota rights so allotted to them would not be transferred but would be used by them in their own right for making the exports. All export documents were executed by the aforesaid three concerns. The aforesaid three concerns had also received export proceeds in convertible foreign exchange. The aforesaid three concerns had also received duty drawback from the Government in their own right. There is no indication in any of the aforesaid export documents that the sister concerns had executed the exports as agent of the assessee. The agreements entered into by the assessee with the sister concerns are bipartite agreements. They do not contain any clause to show that the said sister concerns would represent or act on behalf of the assessee to third parties or that they had the power to make the assessee answerable to third parties or render him liable to be sued by the third parties. There is no evidence on record to show that the sister concerns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other hand, the documents and the materials placed on record clearly indicate that all the aforesaid sister concerns had entered into the transactions with the concerned authorities in their own right and on their own strength. In this connection, we are reminded of the observations made by Lord Herschell in Kennedy v. DcTrafford 1897 A.C. 180 that "No word is more commonly and constantly abused than 'agent"'. The use of the word 'agent' in itself really means very little. The legal incidence of agency must be established to show that the person purporting to act as agent had the capacity to bind the principal in relation to third parties and the third parties in relation to the principal. In the present case, the sister concerns did not have such a capacity in them to bind the principal in relation to third parties or the third parties in relation to the principal. Therefore the plea of the assessee that the aforesaid sister concerns were acting as its agents in carrying out the impugned exports must fail. 17. The Government had allotted quota rights to the aforesaid sister concerns with specific stipulation that they would not be transferable. Such a stipulation was clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 80HHC. Subsection (1) of section 80HHC requires, inter alia, that the assessee must be engaged in the business of "export out of India" of eligible goods or merchandise. Clause (aa) of the Explanation in section 80HHC defines "export out of India" as not including "any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962 (52 of 1962)". In the present case, the goods have been transferred by the assessee to the said sister concerns situated in India, not involving clearance at any customs station as defined in the Customs Act and hence the goods so transferred to the sister concerns cannot be treated as export out of India. Thus the requirements of section 80HHC(1) are not fulfilled in this case. Sub-section (2) of section 80HHC provides that the said section would apply "to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are received in, or brought into, India by the assessee (other than the supporting manufacturer) in convertible foreign ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction would be available "Where the assessee, being an Indian company or a person (other than a company), who is resident in India, exports out of India during the previous year relevant to an assessment year any goods or merchandise to which this section applies....". Likewise, sub-section (2)(a) of section 80HHC as it existed then provided that section 80HHC would apply "to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are receivable by the assessee in convertible foreign exchange." As against the aforesaid provisions of sub-section (1) of earlier section 80HHC, provisions of sub-section (1) of section 80HHC as they existed in the assessment year under appeal provided, inter alia, that the benefit under that section would be available "Where an assessee, being an Indian company or a person (other than a company) Resident in India, is engaged in the business of export out of India of any goods or merchandise to which this ,section applies.....". It is quite evident that the requirement of "export out of India" in section 80HHC(1) existed not only in assessment year 1983-84 considered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That is why in C.T. Ltd v. CTO relied on by the appellant, this Court held that although the State Trading Corporation (STC) was shown as the exporter of goods, since there was no sale to STC, STC merely acted as an agent of the assessee who had purchased the goods for export. This decision cannot be relied on to, construe section 80HHC of the IT Act." "12. Secondly, the phrase, 'sale proceeds... receivable by the assessee' in section 80HHC, sub-section (2), cannot be construed to mean 'sale proceeds ultimately received'. Payment for the export was by the letter of credit. The letter of credit being in favour of the export house, the foreign exchange was 'receivable' by it. That the export house may have chosen to transfer the foreign exchange to a third party under some independent arrangement would not make the third party the exporter. Whatever be the internal arrangement between the export house and the appellant, as far as the IT authorities were concerned, the export house would clearly be the exporter." 20. The principles laid down in the said judgment squarely apply to the case of the present assessee. Sale proceeds can be treated as part of the export turnover only whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government and local bodies in their capacity as exporters. This again shows that the sister concerns were not acting as agents of the assessee and that they had no capacity either to bind the assessee for their dealings with the third parties or bind the third parties for their dealings with the principal. The mere fact that both the parties, namely, the sister concerns and the assessee had agreed that the benefit under section 80HHC would accrue to the assessee does not mean that the Assessing Officer was obliged to extend the benefit of section 80HHC to the assessee. Terms and conditions of agreement between the assessee and its sister concerns cannot override the provisions of section 80HHC. Deduction under section 80HHC is available only to an assessee who satisfies the conditions stipulated in section 80HHC and to none else. As already stated earlier in this order, the assessee has not fulfilled the conditions of section 80HHC and therefore the assessee has been correctly denied the benefit of section 80HHC by the Departmental authorities. 23. Ld. Authorized Representative for the assessee has strongly relied upon the decision of a co-ordinate Bench of this Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morrin in Herrington v. British Railways Board [1972] 2 WLR 537 (HL). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases." Besides, the issue before us is squarely covered by the decision of the Hon'ble Supreme Court in Sea Pearl Industries' case and therefore we see no valid reason as to how we can take a view inconsistent with the law laid down by the Hon'ble Supreme Court. 24. The assessee has referred to a large number of decisions, which are hardly relevant to deciding the matter under dispute on the facts and circumstances of the case. We have however considered them while taking the view in the matter. 25. After taking into account all the facts and circumstances of the case and the propositions of law laid down in Sea Pearl Industries' case, we have no hesitation to hold that notwithstanding the internal arrangements between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon'ble Bombay High Court in Uttam Corpn. v. CIT [1997] 95 Taxman 552 and submitted that the assessee had no control over receipt of export proceeds from foreign buyers and therefore should be allowed the benefit of export proceeds ultimately received by the assessee after the expiry of the stipulated period. 29. In reply, the ld. Departmental Representative submitted that the reliance placed by the assessee on the decision in Uttam Corpn.'s case was completely misplaced. He submitted that the order passed by the Commissioner refusing extension of time was set aside by the Hon'ble High Court in that case as the petitioner-assessee had difficulties in procuring the sale proceeds in respect of exports made within prescribed period. He contended that the said decision could not be interpreted to mean that the export proceeds not procured by the assessee within time should be treated as export turnover as statutorily defined in clause (b) of the Explanation in section 80HHC. 30. We have heard the parties. It is not in dispute that the assessee has received the export proceeds after the expiry of the stipulated period. The assessee contends that it had submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iving a reasonable opportunity of hearing to the assessee. Ground No. 9 is treated as allowed for statistical purposes. 33. Ground No. 10 reads as under: "The ld. CIT(A) erred in confirming the disallowance of the sum of Rs. 8,86,281 being the quota premium paid to three sister concerns." 34. Briefly stated, the facts of the case are that a sum of Rs. 8,86,281 was paid to the three sister concerns whose quota had been utilized by the assessee and through whom the assessee had claimed to have made the exports. The Assessing Officer observed that the impugned expenditure was incurred to acquire the right to use the quota granted to the aforesaid sister concerns in violation of the Garment Export Entitlement Policy notified by the Government. The Assessing Officer further noted that use by the assessee of such quota rights allotted to the sister concerns was prohibited by the notification issued by the Government and hence the impugned expenses were hit by the Explanation to section 37 (1) of the Income-tax Act. On appeal, the assessee contended before the learned CIT(A) that the impugned expenditure was incurred towards quota premium of Rs. 8,86,281 ld. CIT(A) took note of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not produced any evidence to show that there is no nexus." 37. Briefly stated, the facts of the case are that the assessee had borrowed large amounts from banks and other financial institutions on interest. The assessee, on the other hand, was found to have given interest-free loans and advances to its sister concerns. The Assessing Officer examined the details furnished by the assessee and disallowed the interest payments calculated @15 per cent of the amounts advanced interest-free to the sister concerns. On appeal, the assessee contended before the learned CIT(A) that the Assessing Officer had failed to appreciate that the assessee had at its disposal interest-free funds by way of capital and reserves aggregating to Rs. 26.70 crores as compared to the interest-free advances given to the sister concerns amounting to Rs. 92,90,925 for the year under appeal. The assessee submitted before the learned CIT(A) that the interest-free funds advanced to the sister concerns were not out of the interest-bearing borrowed loans and advances as held by the Assessing Officer. The ld. CIT(A) considered the submissions of the assessee. In para 41 of his order the ld. CIT(A) directed the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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